SRI RAGHUNATH JI & SONS vs. INCOME TAX OFFICER WARD 47(1) NEW DELHI

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ITA/919/2019HC DelhiDLHC01042169201921 February 2024Author: HON'BLE MR. JUSTICE YASHWANT VARMA,HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV3 pages

AI SummaryDismissed

What did the High Court hold?

The Tribunal held that an assessee not maintaining a stock register cannot be equated with one that maintains it on a day-to-day basis with quantitative details. While acknowledging the assessee's argument that quantitative details could be derived from purchase and sales registers, the Tribunal found it difficult to accept the deletion of the entire trading addition. The Tribunal observed that the GP rate had increased despite a significant drop in turnover, which was a point of concern. Considering the totality of the facts, including the non-maintenance of daily stock records, the Tribunal deemed an addition of Rs. 2 lakhs on an estimated basis to be appropriate for possible leakage of revenue, thereby meeting the ends of justice. This restricted the addition from Rs. 32,12,706/- made by the AO and upheld by the CIT(A) to Rs. 2 lakhs. The grounds raised by the assessee were accordingly partly allowed by the ITAT.

What were the facts?

The appeals are filed by Sri Raghunath Ji & Sons, Shri Raghunath Traders, and M/s R.L. Traders against orders of the Income Tax Appellate Tribunal (ITAT). The ITAT orders under challenge are dated August 2, 2019, for ITA 919/2019 and ITA 923/2019, and January 31, 2020, for ITA 25/2020. The core issue revolves around additions made to the assessees' income by the Assessing Officer (AO) based on a discrepancy in the Gross Profit (GP) rate. The AO adopted a GP rate of 10% against the assessee's declared rate of 4.39%, citing the non-maintenance of daily stock registers. The assessees contended that their audited books, though lacking daily stock registers, allowed for the derivation of quantitative details. The ITAT, while acknowledging the lack of daily stock registers, restricted the addition to Rs. 2 lakhs on an estimated basis.

What were the issues?

1. Whether the ITAT's order is perverse, and the addition made is without material evidence, ignoring the maintenance of quantitative tally, fully vouched audited books with no defects, and the history of no prior trading additions? (Question of law and fact, concerning the validity of additions based on stock register maintenance and book integrity). Assessee's contentions: The assessees argued that despite not maintaining daily stock registers, their accounts were maintained in a manner that allowed for the derivation of quantitative details at any point, as quantity was recorded in purchase and sales registers. They also emphasized the presence of fully vouched audited books with no defects and a history of no prior trading additions. Revenue's contentions: The revenue, through the AO, adopted a GP rate of 10% as against the assessee's 4.39% on the ground that the assessee had not maintained any stock register and the closing stock was certified by partners based on physical verification. The ITAT noted that an assessee not maintaining a stock register cannot be equated with one that does on a day-to-day basis with quantitative details. The ITAT also observed that the GP rate had gone up despite a significant fall in turnover, which was unusual.

Which sections of the Income-tax Act were involved?

None explicitly mentioned in the provided text.

AI-generated summary — verify with the full judgment below

$~12 to 14 * IN THE HIGH COURT OF DELHI AT NEW DELHI ITA 919/2019

SRI RAGHUNATH JI & SONS

INCOME TAX OFFICER WARD 47(1) NEW DELHI

Mr.Shlok Chandra, Sr.SC with

Ms.Madhavi Shukla, Jr.SC,

Ms.Priya Sarkar, Jr.SC and

Mr.Ujjwal Jain, Adv.

ITA 923/2019

SHRI RAGHUNATH TRADERS

INCOME TAX OFFICER WARD 29(1) NEW DELHI

Mr.Shlok Chandra, Sr.SC with

Ms.Madhavi Shukla, Jr.SC,

Ms.Priya Sarkar, Jr.SC and

Mr.Ujjwal Jain, Adv.

ITA 25/2021

M/S R.L.TRADERS

INCOME TAX OFFICER WARD 29(1)

Mr. Abhishek Maratha, Sr.SC

with Mr. Parth Semwal and

Ms. Nupur Sharma, Advs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV

O R D E R %

21.02.2024

The instant appeals are directed against the order of the Income Tax Appellate Tribunal ["ITAT"] dated 02 August 2019 in ITA 919/2019 and ITA 923/2019 and the order dated 31 January 2020 in ITA 25/2020 and has proposed the following question of law for our consideration: "Ld. Tribunal order is perverse, the addition being without any material, ignoring the fact of maintenance of quantitative tally, fully vouched audited books in which there is no defect and ignoring history of no trading addition".

We find that the ITAT while dealing with the aforesaid aspect has taken into consideration the Gross Profit ["GP"] rate of 10% which was suggested and adopted by the AO as against 4.39% which was set up by the assessee. 3. On an overall consideration of the facts as they obtained on the record, coupled with the undisputed position that the stock registers were not maintained on a daily basis, the ITAT has accorded substantial relief to the assessee and restricted the addition to Rs.2 lakhs on an estimated basis. 4. While dealing with this question, the ITAT has observed as follows:- " 11. I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the Assessing Officer adopted the GP rate at 10% as against 4.39% shown by the assessee on, the ground that assessee has not maintained any stock register

and the closing stock was certified by the partners on the basis of verification of physical stock. I find the Ld. CIT(A) relying on various decisions upheld the action of the Assessing officer. It is the submission of the Ld. Counsel for the assessee that although assessee has not maintained any stock register however the accounts are maintained in such a way that quantitative details can be arrived at any point of time since quantity is given in purchase and sales register. In my opinion an assessee who is not maintaining any stock register cannot be equated with an assessee who maintenances a stock register on day today basis giving quantitative details of items traded. Further in the instant case I find the GP rate in the instant case has gone up although the turnover has significantly gone down to Rs.5.35 crores as against Rs.7.4 crores in the preceding year. When the turnover falls down substantially it is quite-possible that the GP rate may go down. However, in the instant case the GP rate has gone up. However, as mentioned earlier an assessee not maintaining any stock register cannot be equated with an assessee maintaining stock register giving full details. Therefore, deleting the entire trading addition as argued by the Ld. Counsel for the assessee in my opinion cannot be accepted. Considering the totality of the facts of the case I am of the considered opinion that addition of Rs.2 lacs on estimated basis for possible leakage of revenue due to non maintenance of stock records will meet the ends of justice. I, therefore, direct the Assessing Officer to restrict the addition to Rs.2 lakhs as against Rs.32,12,706/- made by him and upheld by the CIT(A). The grounds raised by the assessee are accordingly partly allowed."

We are thus of the opinion that the view taken by the ITAT merits no interference. We find that the appeals raise no substantial question of law. 6. The appeals shall consequently stand dismissed.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. FEBRUARY 21, 2024/MJ

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